Bond rating agency upgrades Wellmont outlook to stable

JEFF KEELING
•
Aug 26, 2009 at 12:00 AM

KINGSPORT — Improving financial numbers at Wellmont Health System have earned the not-for-profit hospital system an upgrade in its outlook from one bond rating agency. Standard & Poor’s Rating Services has upgraded its outlook for Wellmont Health System to stable, citing the health system’s “improving financial metrics” and “betterthan-expected operating performance.” In addition to revising its outlook for Wellmont to stable from negative, S&P has also affirmed the health system’s BBB+ credit rating. S&P analysts said the upgraded outlook is supported by operating improvements that generated $6.5 million in operating income (unaudited) for fiscal 2009. That compares to a $4.6 million loss in fiscal 2008, a figure that wasn’t released until late June after Wellmont decided to review its 2006 and 2007 audits in the wake of former CEO Dr. Richard Salluzzo’s departure in June 2008. The review resulted in a downward revision of 2006 and 2007 revenues. “This positive report from S&P is the result of hard work and commitment by our employees, physicians, board members and leadership team,” Wellmont CEO Mike Snow said. “Their commitment and dedication are making the difference for our hospitals as we continue to face the challenges of a weakened economy and the uncertainty of health care reform.” The S&P ratings report states that Wellmont’s operational improvements have not only led to current financial improvements but also bode well for future performance as well. “The return to a stable outlook reflects our increased comfort that Wellmont has identified and corrected the accounting issues that led to the restated 2007 results and the 2008 audit delay,” the report states. “Additionally, while current economic conditions, and the uncertainty whether limits on future Medicare, TennCare and Virginia Medicaid reimbursement may constrain operations, we believe that management initiatives to reduce costs and improve Wellmont’s revenue cycle will support a generally improving operating trend.” Other factors S&P cited in upgrading Wellmont’s financial outlook include: • “The system’s solid business position characterized by good market share in a demographically favorable region that is largely dominated by two health care systems that have recently become more collaborative.” • Acceptable maximum annual debt service coverage, despite the economic downturn that affected investment income for organizations throughout the country. Wellmont’s debt service coverage “remained consistent with prior years, despite the significant decline of investment income and other nonoperating revenues in fiscal 2009.” • A stabilized balance sheet that includes 131 days’ cash on hand. As of Tuesday another ratings agency, Fitch, had not yet changed Wellmont’s outlook from the “watch negative” it announced in January. Fitch also rates Wellmont’s $456 million in debt BBB+. Johnson City-based Mountain States Health Alliance has a BBB rating from Fitch, one notch lower than Wellmont, on its debt of $965 million.